MBS Highway - Daily Update 10/12/2022
Current position: Continue Locking
Bonds went through their monthly coupon rollover last night. This occurs each month because Mortgage Bonds are finite. They have an end term, such as 30 years. Therefore, each month a new 30 - year period begins. This new 30 - day extension is reflected in an adjusted rollover price. This rollover does not impact your pricing. The effect of yesterday's rollover was -16bp.
Stocks are higher and Mortgage Bonds are lower so far this morning. Cleveland Fed President, Loretta Mester, spoke yesterday and said that she has not seen any progress on inflation and she believes the Fed needs to continue to raise rates to be more restrictive. This is a stark contrast to what she said last year when she was not concerned with inflation at all and actually said we need more inflation. This goes to show that you cannot trust what the Fed members say, as they flip-flop and change direction quite frequently.
The Producer Price Index, which measures wholesale inflation, rose 0.4% in September, which was two-tenths hotter than expected. Year over year, PPI decreased from 8.7% to 8.5%, and while it moderated, it was one-tenth higher than the 8.4% anticipated.
The Core rate, which strips out food and energy prices, rose 0.3%, which was in line with expectations. Year over year the core rate decreased from 7.3% to 7.2%, which was slightly lower than expected.
Bottom line - We did not see any meaningful decline in producer inflation and that can translate to a worse report than expected tomorrow for consumer inflation. Producers have two choices - Cut margins or pass those costs along.
The MBA released their Mortgage Application data for last week, showing that Purchases fell 2.1% last week and are down 39% year over year. Interest rates moved higher from 6.75% to 6.81% and are roughly 3.6% higher than this time last year. Refinances decreased by 1.8% and are down 86% year over year. Refinances still made up 29% of all transactions. ARMs made up 12% of transactions. With the move higher in interest rates this week, they are likely around 7%.
The MBS Highway Survey, which is comprised of roughly 3,000 Mortgage and Real Estate Professionals, was just released in October. We created a new shareable image below, which is a great touchpoint for customers and referral partners. There is certainly a slowdown in activity and pricing pressure from September to October, with only 29% of respondents still citing that their markets are active, while 71% note that it is slower. 5% of those surveyed are still seeing price increases, while 74% are seeing some degree of price decreases, although many of these are listing prices that are coming down to earth and not home value declines.
Later today at 1:00 pm ET there will be a 10 - year Treasury Note Auction, which we believe will be weak and could add pressure to the Bond market. The reason is that investors will likely not want to jump in a buy when the Fed minutes will be released an hour later, where we know they were talking tough on the economy, inflation, and pain. Additionally, tomorrow the Consumer Price Index report will be reported and the core rate of inflation is expected to rise from 6.3% to 6.5%.
The latest October MBS Highway Housing Survey is out - Clearly, activity has continued to slow. Make sure to share the below infographic with your referral partners.
Mortgage Bonds are now trading 24bp above support at the lows from September 27 at 96.28. The 10 - year is trading at 3.96% and has room to move higher until testing the 4% local high. Continue Locking.